Message-ID: <27536316.1075858663169.JavaMail.evans@thyme> Date: Thu, 25 Oct 2001 05:45:10 -0700 (PDT) From: rogers.herndon@enron.com To: richard.ring@enron.com Subject: RE: Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: quoted-printable X-From: Herndon, Rogers X-To: Ring, Richard X-cc: X-bcc: X-Folder: \RRING (Non-Privileged)\Inbox X-Origin: Ring-R X-FileName: RRING (Non-Privileged)1.pst Richard - Excellent summary. thanks. RH -----Original Message----- From: =09Ring, Richard =20 Sent:=09Wednesday, October 24, 2001 7:08 PM To:=09Herndon, Rogers Subject:=09 Rogers, Enron Energy Services, Inc. ("EESI") submitted application to become a NEPO= OL member, to be effective January 1, 2000. EESI was approved by the NEPOO= L Participants Membership Subcommittee at its January 24, 2000 meeting. On= e requirement of NEPOOL membership is to satisfy the Financial Assurance Po= licy for NEPOOL Members. EESI, Enron Energy Marketing Corp, and Enron Powe= r Marketing, Inc. are all members of NEPOOL and have chosen to satisfy the = Financial Assurance Policy by issuance of Performance Bond(s), rather than = corporate guaranty, due to Enron's disagreement with the Form of Corporate = Guaranty required by NEPOOL. EESI, via Fireman's Fund Insurance Company, issued a Performance Bond in th= e amount of $8,000,000 in June 2000; the Performance Bond was reissued in J= une 2001 in the amount of $8,000,000. EESI received a letter from ISO New = England dated October 10, 2001, addressed to Becky Pitre (EESI Settlements)= and received by Becky probably October 12, 2001, indicating that EESI's cu= rrent Performance Bond was insufficient and that EESI needed to increase th= e amount to $11,703,018.75 to cover EESI's current activity level. Becky d= elivered the October 10th letter to my attention whereby I took the letter= to EESI Legal Department (Karen Cordova) and informed Karen that EESI need= ed to increase the Performance Bond to $20,000,000. Karen requested Credit= Department (Nichole Gunter) initiate an increase in the Performance Bond t= o the $20,000,000 level; to the best of my knowledge the initial conversati= on with Credit Department was October 12, 2001. In telephone conversations= with ISO-NE, Enron's Credit Department personnel were informed by ISO-NE t= hat in order to avoid Financial Assurance Default the matter needed to be r= esolved within ten (10) days of the date of the October 10, 2001 letter (Oc= tober 19, 2001), however the letter did not indicate such.=20 I was notified by Credit Department on October 16, 2001 that the bond compa= ny Enron utilizes for performance bond(s) would not process our Performance= Bond request for increase until Enron paid the bond company for outstandin= g invoices for "other" performance bonds (bond renewals), approximately $1= 50,000. The "other" performance bond invioces had been bounced around EESI= , since June 2001, to various individuals (i.e. Greg Sharp, Mark Mueller, J= eff Golden, Scott Mills) and had still remained unpaid. Payments for the "= other" performance bonds were made and the bond company processed our reque= st for increase in the EESI NEPOOL Performance Bond to $20,000,000, which w= as issued by the bond company on October 23, 2001, executed by EESI on Octo= ber 23, 2001 and forwarded via FAX and Overnight Mail to ISO-NE on October = 23, 2001. EESI was unable to comply with the October 19, 2001 deadline to = resolve the Financial Assurance Default due to complications with the bond = company as mentioned above. Credit Department personnel informed ISO-NE pe= rsonnel that EESI would not meet the October 19, 2001 deadline, but was wor= king diligently to resolve the matter; Credit Department personnel sent via= FAX, a copy of the request to the bond company for revisions to the Perfor= mance Bond to ISO-NE personnel on October 19, 2001. =20 I notified Dan Allegretti, (Enron Government Affairs & Chariman, NEPOOL Par= ticipants Committee) of the entire situation prior to October 19, 2001. Da= n indicated that he did not think there would be any problems, but to get t= he matter resolved as quickly as possible. Dan advised me that the implicat= ions of the Financial Assurance Default would result in communications to t= he Membership Subcommittee and that when the next letter was published, the= following month, EESI would no longer be listed as being in default. On O= ctober 19, 2001 another letter was sent to Becky Pitre (EESI Settlements) f= rom Edward McKenna, Vice President & Chief Financial Officer informing EESI= that "Enron Energy Services, Inc. has not maintained the required level of= financial assurance for 10 days or more, and has had a total combination o= f 3 financial assurance and/or payment defaults in the last 12 months, whic= h qualifies them as having 2 (two) Level 1 defaults. The ISO has been in c= ontact with Enron Energy Services, Inc. through multiple telephone communic= ations, and to date the financial assuvance default has not been cured. Th= erefore, per the established procedure, we are forwarding this information = to the NEPOOL Membership Subcommittee for action by them." According to Da= n Allegretti the Memberhsip Subcommittee reports to him, as Chariman of the= Members Subcommittee, and he would discuss the issue with them. The previ= ous two Financial Assurance Defaults mentioned the October 19, 2001 letter = occurred (i) December 2000, when payment was received 1-2 days late and was= automatically resolved when payment was received and (ii) September 2001, = when Financial Assurance Default occurred and was resolved through market a= ctivity. To the best of my knowledge, EESI was unaware of either the Decem= ber 2000 Payment Default or the September 2001 Financial Assurance Default,= and no information was received by EESI from ISO-NE relative to either inc= idence. According to (i) Protocal for the Initation of Membership Termination Proce= edings and (ii) conversations with Dan Allegretti, the issue should be reso= lved with the receipt on October 24, 2001 of the Performance Bond by ISO-NE= . I have also advised the ISO-NE, in the future, to send communications to= EESI's Credit Department and not EESI's Settlements. Also, Dan Allegretti= is investigating the facts leading the the October 19, 2001 letter with re= presentatives from ISO-NE. I left message for Molly Harris as you requested. I was able to speak to De= nise Furey and Nichole Gunter, who both indicated that they would speak wit= h Molly as they all work together. =20 Let me know if you need any additional information. Richard =20 =20